Hidden IP: booby trap or buried treasure?

WASHINGTON  If the process by which technology standards are forged and implemented isn't broken, it is surely straining under the weight of globalization, relentless technological change, patent-infringement and antitrust lawsuits as well as increasingly noisy standards battles among competing industry consortia.

In response, standards bodies are reviewing their procedures for dealing with intellectual-property (IP) rights. Many are focusing on patent and licensing disclosure. The IEEE, for instance, is awaiting a government opinion on a plan to use voluntary patent disclosure in its standards proceedings (see story, below). Groups like VITA, the Digital Video Broadcasting Project and Jedec are either conducting similar reviews or contem- plating new disclosure requirements.

The reassessments come as antitrust enforcers weigh in on such issues as patent and licensing dis-

closure rules, and as Congress considers legislation designed to reform U.S. patent laws. Earlier this month, patent reform bills were introduced in both the House and Senate. On the same day, the Justice Department and the Federal Trade Commission (FTC) issued a long-awaited report on U.S. antitrust enforcement and IP rights.

The report concluded that many uses of IP, such as patent pools and cross-licenses, are pro-competitive and good for consumers. But antitrust officials also invoked a legal concept called the "rule of reason" as a primary means for weighing pro- and anti-competitive effects. Moreover, U.S. officials said, the rule will be applied on a case-by-case basis.

Many in industry consider the rule of reason ambiguous, and fear that determining how it will be applied in antitrust law will prove costly should a standards group or a member company end up in court. The rule is "very case-specific," one industry observer said, and it "could be very expensive to make a mistake."

A key question for many standards groups is the extent to which participants must disclose patents or licensing terms, known as ex ante ("beforehand," in Latin) disclosure. At least one small standards group--the VMEbus International Trade Association (VITA), which develops specs for embedded systems used in mission-critical applications like aircraft and satellites--has decided to require disclosure by its members.

Larger umbrella groups such as the American National Standards Institute (ANSI), which technically is not a standards body but promotes U.S. business interests around the world, have a big stake in the outcome of the evolving IP disclosure policy.

Last October, the Justice Department issued antitrust guidelines for ex ante disclosures in response to a request by VITA. The guidelines, known as a "business review letter," are currently being scrutinized by groups like ANSI.

Antitrust enforcers said in the letter that they would "not oppose a proposal by [VITA] to implement a policy on the disclosure and licensing of patents."

That means "you're getting everything on the table," said Ray Alderman, VITA's executive director. The goal, he said, is to make the "standards process fair, open and transparent to all parties."

But an FTC attorney cautioned that it would be a mistake to interpret the Justice Department letter too broadly. Suzanne Michel, assistant director for policy and coordination, said a pro-competitive ruling for one group on ex ante disclosures doesn't mean other standards groups would pass muster under U.S. antitrust laws. Michel said the rule of reason would apply in sorting out future antitrust and IP rights issues raised in standards deliberations.

Business review letters are a useful tool for helping standards groups understand antitrust enforcement, but they are "not a 'get out of jail free' card," said Earl Nied, an Intel Corp. standards executive who chairs the ANSI Patent Group. "It does not allow you to circumvent the law, and it cannot predict unanticipated actions."

While there is uncertainty among standards groups about how broadly the Justice Department guidelines on patent disclosure should be interpreted, some say the guidelines at least establish a threshold for rules used by standards organizations. For instance, John Kelly, the president of Jedec, said full disclosure of patents is not a panacea; indeed, he said, if IP holders are compelled to disclose all patent and licensing terms, participation in standards groups could decline.